ADB’s outlook for Bangladesh

The Asian Development Bank has recently released its forecasts for 2010 and 2011. The chapter on Bangladesh is here. Summary:

The global recession’s late-unfolding effects will, this year, slightly slow growth, but it will likely improve next year as the worldwide recovery strengthens. Macroeconomic stability has been maintained, but liquidity pressures in banking have emerged and will need to be dealt with decisively. Power and natural gas shortages will have to be tackled through large and quick investments, and policy and institutional reforms accelerated, to raise medium-term growth. Therefore, greater implementation capacity is needed for government development projects and infrastructure investments under the new public–private partnership scheme.

More details over the fold.

ADB expects GDP growth to have slowed in the fiscal year 2010 (that is, the one ending on 30 June) due to the lagged effects of the global recession on exports and industry in the first half of the fiscal year (that is, July to December 2009). Growth is expected to recover to 6.3% next year. Consistent with this, growth in the industry sector is expected to have slowed 5.6% this year, before a forecast rebound of 7.5% next year.

The chart below shows how the forecasts (green bars) rate against recent outcomes (grey bars) and the average over the past decade (red line). The slowdown is evident. But considering that this time last year, I was fearing a growth rate of 4% or less, if it comes to pass, ADB’s 5.5% won’t be too bad an outcome at all. In fact, if Bangladesh government economists are to be believed, economic growth this year will be closer to 6%.

So far, so good. We seem to have avoided the worst effects of the global recession. It’s not, however, all good news — an old economic enemy is back. The chart also shows that annual inflation is expected to be stubbornly high both this year and next (year ended inflation rose again in February) because of ‘excess liquidity in banks and international price pressures.

The ADB notes that broad money and credit are growing faster than the Bangladesh Bank’s targets. That macroeconomic stability has been broadly retained must mean the fiscal authorities have done better in managing the deficit. Indeed, the budget deficit is ‘expected to be contained within the projected level of 5.1% of GDP’. But this is a decidedly mixed outcome. The fiscal position looks ‘manageable’ only because the development budget and public private partnerships remain underused.

Looking forward, the ADB is pretty clear about what needs to happen:

Infrastructure investment needs to be boosted for faster economic growth and poverty reduction. Underinvestment over the years has resulted in acute deficiencies, especially in power and gas, ports, and

roads, which are restricting business opportunities and access to public services. Consequently, the government has to substantially raise project implementation capacity in public sector agencies, lift ADP utilization, and carry out PPPs in infrastructure. To launch the PPP scheme, the legal framework for setting the responsibilities of stakeholders, for costrecovery provisions, and for compensation and redress mechanisms needs to be put in place quickly.